No chicken, no cafes: Egyptians scrimp as prices leap
Money had already been tight as food and electricity bills climbed for weeks. So Ashraf Mahrous, a 45-year-old civil servant, warned his wife, “Black days are ahead,” when Egypt floated its pound and hiked fuel prices this month. Mahrous is now looking for a side job. Rising inflation has forced him to stop eating chicken and borrow cash from friends to make ends meet. He also gave up his regular evening cafe visits and slashed his son’s allowance. “We can no longer survive on my salary,” Mahrous, a father of two, said. “The situation is very, very, very difficult.”
Struggling to cope with price increases, some Egyptians are scrimping on meals, buying used clothes or considering moving their children to cheaper schools. Even the better off are feeling the pinch. And more price jumps are likely amid a slew of economic decisions designed to revive a battered economy, lure back investors and end a dollar crunch. Egypt recently took what many economists say is the necessary step of floating its pound and cutting fuel subsidies as it sealed a $12 billion loan deal with the International Monetary Fund.
Pound loses value
The Egyptian pound quickly lost about half its value, plunging to around 18 to the dollar, in a country heavily dependent on imports ranging from food items to raw materials. With salaries remaining largely the same, nearly everyone in the already deeply impoverished country effectively had a sudden, large pay cut. Multiple previous governments had balked at such moves for fear of stoking unrest. The devaluation came after other steps that increased prices - the introduction of a value-added tax and hike in household electricity prices.
Even before the pound plunge, inflation had stood at 13.6 percent in October. A hard currency crisis led to shortages in medicines and basic staples like sugar. Unrest and uncertainty after Egypt’s 2011 uprising has hurt tourism and deterred foreign investors. “Egyptians are in for a tough time over the next year,” said Jason Tuvey, Middle East economist at Capital Economics who expects inflation to peak at more than 20 percent in the middle of next year. While the recent decisions “should ultimately lay the foundations for a period of stronger economic growth,” it will take time before such benefits can be reaped, he said.
Mohamed Abu Basha, senior economist at investment bank EFG-Hermes, said he expects inflation to average 18.5 percent in the fiscal year that ends in July 2017, reaching the highest annual average since at least 2008. The first signs of relief aren’t likely before mid-2017, he said. After that, economic recovery may start as foreign currency shortages ease and investment picks up, he said. Finance Minister Amr el-Garhy said inflation was expected to ease to around 10 percent during the second half of 2017, according to the state-run news agency.
Tuvey predicts inflation won’t fall back to single digits until near the end of 2018, and it could take even longer before Egyptians see the rewards for their sacrifices in the form of more jobs and wage growth. Investors want to see more changes to improve the business environment, he said. “Egypt has all the ingredients to become a manufacturing hub,” he said. “To the extent that a weaker pound and economic reforms could spark a move in that direction, we’d certainly see job prospects stem from prospects of growth, and wages as well should pick up.”
Until then, officials have counseled patience and promised to protect the neediest. In a bid to soften the blow, the central bank raised its key interest rates by three percentage points this month and the army is handing out millions of food parcels at discounted prices. These efforts provide little consolation to Mahrous, who said his daily transportation costs have increased after the fuel subsidy cuts. Food eats up the largest chunk of his salary of 1,300 pounds a month, he said. — AP
PELALAWAN, Indonesia: A girl pushes a cart while working at a palm oil plantation area in Pelalawan, Riau province in Indonesia’s Sumatra island. — AFP
CAIRO: Egyptians carry their children as they shop at a popular market in Cairo, Egypt. — AP